1098-T Box 5 includes health insurance remission — misclassified as scholarship/fellowship?

[Vermillionnnnn]

I’m an international student (RA already) who received a 1098-T this year. I noticed that Box 5 includes a health insurance remission, which I understand to be an employment-related benefit (not a scholarship or fellowship).

The issue seems to be that the school billed the health insurance through the tuition portal and later applied the remission as a credit — so it appeared in their system as a tuition-related offset. As a result, it was automatically reflected in Box 5 of the 1098-T, even though this remission is part of my employment benefits and not academic financial aid.

I have a job offer letter and employment classification showing clearly that this is job related aid.

I’m now trying to figure out the best path forward. Some options I’m considering:

1. Omitting the 1098-T entirely, since the actual qualified tuition and the true scholarships cancel out, and the rest is misclassified.

2. Reporting it and applying a tax treaty to exempt the amount federally (as I am eligible for one of them) — but that would treat the amount as taxable "fellowship" income, which isn’t accurate, and it creates a state tax liability (since my state does not honor federal treaties).

3. Manually removing the misclassified portion with a written explanation — but that likely requires paper filing and may slightly raise audit risk.

4. Requesting the school to reissue or revise the 1098-T, though I’m unsure if that’s even possible given how their systems process remission credits.

Has anyone dealt with a similar situation? Is it reasonable to omit the 1098-T in this case, or to subtract the misclassified amount with a note? Would appreciate insight on how best to resolve this while staying compliant and avoiding unnecessary state tax burden.

[Bsch4477]

The 1098-T is an informational form and not matched by the IRS like a W-2. If you have no taxable scholarship you can ignore the form. 

[Hal_Al]

I agree, do not submit a written explanation.

I also agree with @Bsch4477 , you can just not enter the 1098-T or adjust it as needed.*  The IRS does not generally try to match 1098-T box amounts to your tax return. 

Q. Has anyone dealt with a similar situation? 

A. No. I have not seen that issue in this forum. 

That said, the school may have done it right. Not all employer provided health insurance is tax free. It depends on whether their health plan meets the IRS rules for tax free health.  Furthermore, it is not unusual for compensation for student-employees to be treated as scholarship.

* Longer explanation: The 1098-T is only an informational document. The numbers on it are not required to be entered onto your tax return. However receipt of a 1098-T frequently means you are either eligible for a tuition credit or possibly your student has taxable scholarship income. 

If you claim the tuition credit, you do need to report that you got one or that you qualify for an exception (the TurboTax interview will handle this)

You claim the tuition credit, or report scholarship income, based on your own financial records, not the 1098-T. In the 1098-T screen, click on the link "What if this is not what I paid the school" underneath box 1. You will then be able to enter the actual amounts paid. You will also reach a screen that allows you to adjust the scholarship amount for "amounts not awarded for 2024 expenses".

Or if you find it easier, just change the numbers in boxes 1& 5 to what your records show. The 1098-T that you enter in TT is not sent to the IRS.

[Vermillionnnnn]

Hi there,

Thank you for your reply. I am just very confusing to this point that:
1. How should I determine if the health benefits are tax free or not? Where should I find those information and how should I argue this with my University?
2. Suppose I decide to not include 1098T, (some of my classmates do). Should I still upload to TurboTax and just manually change the value to what I believe is correct? Or should I just not upload it at all? I don't see a difference between this two in term of the final form send to IRS, as 1098T is usually not included.

3. So as a grad student, I have seen this quite often happens around me. But most people do dismiss it and not even realize 1098T is something required to file (sometimes does not download it at all). I also see some similar situation in this forum as well elsewhere  https://ttlc.intuit.com/community/college-education/discussion/grad-health-insurance-and-1098-t/00/1.... It makes me question on how wide spread this situation and if Gard student is equipped with enough knowledge to solve it.
4. Following point 3, grad student usually entitled to stipend, which is like a money/benefit that the university/department promised. However, the stipend can constituted of multiple component, including fellowship, wages, and other form of money. Usually the school promise to give you a certain amount, but sometimes it comes in the form of a employment appointment and W2, and benefits clearly stated that is from the employment, including fee remission for health insurance and tuition.
5. Since it's approaching the end of September, I am start to worry about what should I file. Clearly I still need time to figure this out. I made estimation on the number I believe is correct and I should have a tax return. However, I worried if based on the wrong form I have to submit, I might have owe a tax and I didn't pay it back in April.
It is so frustrating that this is happening. Please let me know if there is any potentially good solution to my current situation. Thank you. 

[Bsch4477]

Don’t overthink it. The IRS doesn’t compare your return information with the 1098-T it receives. Report the amounts which seem reasonable to you and don’t worry about it. 

[Vermillionnnnn]

Thank you so much. I worked in UC system and I found in UCSF website the following statement:

Non-Taxability of Fee Remission: Fee remission is non-taxable. Therefore, fee remission benefits are not included in gross earnings reported to the IRS. However, fee remission benefits are listed on the 1098-T form and may be treated as tax-exempt income, per IRS Publication 970.
I think the policy should be the same across UC system (I work in a different campus). So I think I will try to fix my 1098T or just drop it if I can't make the deadline.

[Bsch4477]

Well done!